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WHAT DOES AN INCREASE IN HOME SALES MEAN FOR THE US?

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WHAT DOES AN INCREASE IN HOME SALES MEAN FOR THE US?

May 29 2015, 07.45am GMT

STOCK.com

On Thursday morning, the National Association of Realtors (NAR) said that the upcoming sales of existing homes, measured an increase last month to the highest levels seen in 9 years.

This is good news for the U.S. housing market yet it is important to note that this increase does not guarantee bigger growth in upcoming months.

Interestingly, the index of pending home sales is a great guide to future closings, which leads final sales by a few months. But last month there was a noteworthy breakdown in this relationship; in April, the existing home sales pace decreased by 3.3%, despite the fact that throughout the first quarter, the pending gauge rose.

Lawrence Yun, chief economist at the NAR said that perhaps it was only a one month occurrence.

Yun added however, that if the gap persists between outstanding sales & actual closings, it could show a rise in cancellations. There are all sorts of reasons why deals are cancelled, like issues uncovered during inspection or financial problems.

Some economists are worried whether the U.S. housing market can overcome a variety of challenges this year, namely prices that are rising rapidly, with the amount of homes for sale showing slower demand in many markets, and tied with weaker income growth, the situation is not assisting families to being able to afford owning their own home.

Despite the current situation, there are some reasons for hope in the housing market. Young families & other first time buyers are being extremely cautious in the market. This trend will lend support to the broader economy & other owners who choose to purchase a new place. That said, mortgage rates remain low, keeping the costs of loans down and these may be the factors that can turn fence-sitters into buyers.

Given this, a well-known housing economist increased his forecast recently for purchase mortgages in 2015, stating that he expects somewhat moderate yet broad-based improvements.

Doug Duncan, Fannie Mae’s chief economist said on Thursday that the outstanding measure is “reasonably predictive,” saying he predicts that the jump in April will result ultimately in “increased sales.”

Wells Fargo Securities economists, after Thursday’s data was released, wrote that the sales drop in April for used homes may just “have been a blip.”

According to Wells Fargo, the outstanding home sales numbers show that the monthly decrease will be short-lived. Growth seems to be broader-based across regions.

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